Reassured by a better-than-expected results of Reliance Industries, a host of analysts has a positive take on India's second-largest company by market capitalisation and they have mainly bet big on the launch of its 4G services, oil refining margins and capacity boost.
"Reliance Industries' Quarter 2 performance came as a positive surprise to us and the street," said Nomura, adding that the jump in the net profit after tax of the refining-to-retail company was 11 percent ahead of their own estimate and 12 percent higher than the Bloomberg prediction.
The analyses by the equity research and broking firms have four key common threads: The launch of Reliance Jio, the group's 4G services, is all set for end-December, the petrochemicals expansion appears on track, refining margins are higher and retail trade is seeing better profits.
"Note that the company is constructing the world's largest petcoke gasifier and off gas cracker. We continue to believe that both refining and polymer margins will remain robust over next two years," said HSBC Global Research.
A lingering concerns over Reliance's hydrocarbon exploration business is the uncertainty over the hike in natural gas prices. "We note any developments on deregulation of domestic gas prices will be positive for Reliance as it would make more reserves economically viable," said Goldman Sachs.
"We think it's important the government provides further clarity on premium gas price available for deep-gas/ultra-deep gas discoveries and, more importantly, if Reliance's older/undeveloped discoveries are eligible for these premium prices," added UBS Global Research.
The major buzz, though, is around the launch of its 4G services. The company is expected to start selling 4G-enabled handsets under the "LYF" brand around mid-November and launch the services on December 28 -- the birth anniversary of the late founder Dhirubhai Ambani.
This apart, out of the total guidance of Rs.1 trillion spend on 4G, around $950 billion has been reached. Further, the Department of Telecom has been informed that the company intends to share the radio frequency spectrum for this as well.
According to UBS Global Research, the initial operational losses of Reliance Jio will impact the group's earnings growth during the first four years. "But we believe good traction on subscriber additions post 4G launch would be a key trigger rather than investors' focus on initial losses."
As regards retail of transport fuels, some 600 outlets out of the planned 1,400 outlets have been commission already. During a post-results analysts meet, the management also said it will look to improving its market share through some aggressive consumer schemes.
"Reliance is aggressively targeting bulk diesel market, and has signed a supply contract with Indian Railways (largest diesel consumer). This would also lead to higher GRM (gross refining margin) due to higher realisation in the domestic market versus exports," said Axis Capital.
If policy remains a concern, Edelweiss expected 90 percent of earnings from non-regulated areas.
"Reliance's strength lies in its ability to build businesses of global scale and execute complex, time-critical, and capital-intensive projects, which will prove advantageous as it embarks on large investments in all core segments."
